Table of contents

Hungary’s natural gas market has been singularly dominated by the Panrusgaz legacy contract since 1996, and although its expiration is delayed until closer to 2018, it is easy to see that the new agreement will be negotiated on entirely different terms. This is due to an ad hoc agreement between Hungary and Russia that will extend the terms of the contract for Hungary to purchase the take-or-pay (TOP) deficit that accumulated over the past few years. Like other Central and Southeast European (CSEE) countries, Hungary has benefited from the rising tide of interconnectivity and hub-based trading across Europe that has enabled diversification of supply in Hungary and undermined the utility of long term buyer-side commitments of the past. With demand unlikely to rebound to pre-crisis levels in the medium-term and more competitive import capacity than ever before, Hungary must consider how a new arrangement with Gazprom will contribute toward the reshaping of its domestic market.

There are several EU documents declaring the need for more interconnectivity of the European gas networks, especially in South East Europe. Starting with the TEN-E Regulation, which sets the framework for defining projects of regional interest, to the more policy oriented and strategic documents like the Energy Union proposal of 25 February 2015 or the Commission’s European Energy Security Strategy of 28 May 2014 that was followed by the Stress Test in October 2014 - all point out the need for more gas sources and more interconnectivity for the European gas networks. The identification of the most important projects from a European and regional point of view also has a long history.

In July 2015 the European Commission published a package of proposals to amend the regulation of the energy markets. The “summer energy package” includes the modification of regulations governing the operation of the emission trading system and the application of energy labels, proposals contributing to the protection of consumers as well as their market participation, and the transformation of the operating model of the electricity market. Below we introduce the most important elements of the package and evaluate their likely impact.First the new electricity market model drafted by the Commission is examined, focusing on recommendations that aim to enhance the market participation of consumers via distributed renewable energy that they produce and consume. In the second part of the article we inspect the climate change regulation. After reviewing the voluntary emission reduction commitments released before the Paris climate conference, the individual regulatory proposals meant to guide the EU to its 40% emission abatement target are assessed.